Post price reform sudden spurt in global prices may hurt refiners' bottomlines

Oil refiners may post Rs 10,000-cr losses in Q1


Total fuel deficit for the fiscal down to Rs 55,000 crore.

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Impact # The Centre will not consider another price revision.

Any sudden spurt in global prices can hurt refiners' bottomlines.

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….by….Murali Gopalan….Mumbai, July 15….from the pages of HINDU BUSINESS LINE newspaper.

IndianOil, Hindustan Petroleum Corporation and Bharat Petroleum Corporation are expected to post net losses of nearly Rs 10,000 crore combined for the first quarter of this fiscal. Fuel losses for the period are closer to Rs 19,000 crore of which, a third would be made good by the upstream trio of Oil and Natural Gas Corporation, Oil India and Gail (India). The refiners would, therefore, have to take the hit for the balance (after factoring in some forex gains) with no possibility of any compensation coming in from the Centre in the coming days.

Oil industry sources told Business Line that an encore could be expected in the second quarter too going by past experience.“The Government typically steps into the picture during the third quarter by which time the quantum and mode of compensation will be worked out. By the end of the fiscal, the refiners will be back in the black,” they added. Ideally, the companies would prefer earlier compensation as the time lag only results in higher interest costs and more borrowings. Quite unlike recent years, especially 2008-09, when crude prices had spun out of control, things are looking a lot healthier for the downstream oil sector. A policy framework for deregulation is in place with petrol practically out of administered pricing with marginal hikes implemented in diesel, kerosene and cooking gas. All these have resulted in total fuel losses for the fiscal down to Rs 55,000 crore (from the earlier levels of Rs 75,000 crore), of which, a big chunk will be part of Q1. The refiners are hoping that crude stays within the ambit of $80 a barrel since any unexpected jump can be catastrophic from the viewpoint of losses piling up.

Diesel worries

The other concern relates to diesel which accounts for a substantial part of the projected fuel losses. The Centre has now made it clear that it will not consider another price revision for a while now (keeping inflation in mind) which means that any sudden spurt in global prices could hurt the refiners' bottomlines. The oil industry is now coming to terms with the fact that it will have to bear a part of the pain in the compensation formula. It is unlikely that the Centre will square up the balance two-third fuel losses in full which means that IOC, HPCL and BPCL will have to take a hit in their books. In any case, this has been the script over the last seven years and the three oil majors have absorbed losses of over Rs 80,000 crore till date.“We have also realized that complete deregulation is unlikely for some time now and have learnt to live with this reality,” an executive said.